EUR/USD Forecast: Euro remains vulnerable below 1.0500

EUR/USD has gone into a consolidation phase below 1.0500 early Thursday after having lost nearly 100 pips on Wednesday. The negative shift witnessed in risk sentiment should make it difficult for the shared currency to find demand and force the pair to remain vulnerable in the near term.

Comments from European Central Bank (ECB) officials failed to help the euro on Wednesday as the sharp decline witnessed in global equity indexes allowed safe-haven flows to dominate the financial markets. Early Thursday, the Euro Stoxx 600 Index is down 1.7% and US stock index futures are falling between 0.7% and 1%, suggesting that markets are likely to remain risk-averse in the second half of the day as well.

ECB Governing Council member Madis Muller noted on Wednesday to see rates rising past zero in 2022. On a more cautious note, Spanish central bank chief Pablo Hernandez de Cos argued that following a rate hike in the early third quarter, further rate increases could be made in subsequent quarters if the medium-term inflation outlook remains around the target. 

The ECB will release the accounts of the April monetary policy meeting later in the session. A 25 basis points rate hike in July is already priced in the market reaction is likely to remain muted in case the publication confirms such a decision. In case the ECB statement suggests that policymakers see the need for successive rate hikes amid inflation fears, the pair could regain its traction. 

Nevertheless, the risk perception should remain the primary driver of the pair's action. The US economic docket will feature the weekly Initial Jobless Claims and the Federal Reserve Bank of Philadelphia's Manufacturing Survey. Unless these data trigger a rebound in US stocks, the greenback should manage to preserve its strength.

EUR/USD Technical Analysis

EUR/USD trades slightly below the key 1.0500 level, where the Fibonacci 61.8% retracement and the 100-period SMA on the four-hour chart are located. In case this resistance continues to limit the pair's upside, sellers are likely to show interest and cause the pair to slide toward 1.0480 (Fibonacci 50% retracement, 50-period SMA),1.0450 (Fibonacci 38.2% retracement) and 1.0420 (Fibonacci 23.6% retracement) afterwards.

On the other hand, a four-hour close above 1.0500 could be seen as a bullish development and open the door for an extended rebound toward 1.0550 (static level) and 1.0580 (static level).